July/August 2013
Report: BIR Shanghai
Looking Beyond Today’s Troubles
There wasn’t a lot to celebrate about the current international scrap markets at BIR’s spring convention in Shanghai, although speakers still see a strong long-term future for scrap.
By Adam Minter and Joe Pickard
The Huangpu River runs through the heart of downtown Shanghai, past the Pudong Shangri-La hotel where the Bureau of International Recycling (Brussels) held its spring convention in late May. The setting was appropriate: Over the past two decades, that river has transported millions of tons of scrap and other raw materials, and the exporters and importers at the BIR meeting probably purchased or sold much of that tonnage. At BIR’s last China-based convention, in Beijing in 2006, a sense of discovery and opportunity pervaded the event. The 2013 event, in contrast, had an atmosphere of comfortable familiarity among its 1,100 attendees. And why not? For more than two decades, Chinese importers and scrap exporters from around the world have developed deep, fruitful relationships that have forever altered the scope and scale of the scrap recycling industry. Throughout the meeting, the ties between Chinese recyclers and brokers and their scrap suppliers were obvious.Nonetheless, the meeting occurred at a particularly troubling time for the global recycling industry. Slowing growth in Asia, a severe European recession, and an uncertain U.S. economic recovery have combined to create a stagnant world scrap market that shows little near-term potential. Although central banks have flooded markets with liquidity, economic recovery in the developed economies could take longer than expected, with the eurozone especially lagging behind, said Stefan Schilbe of HSBC Trinkaus & Burkhardt (Düsseldorf, Germany) at the Ferrous Division meeting.
Making matters even more difficult, China is in the midst of what is being called its “Operation Green Fence” initiative, its harshest crackdown in years on allegedly contaminated imports of recyclables, causing considerable consternation—and, reportedly, losses—for importers and exporters alike. Both subjects dominated the discussions throughout the BIR event.
Even with the near-term negativity, most delegates see a bright future for the international scrap trade. Barring an unforeseen economic catastrophe, the developing countries in Asia are still growing, and their economies are likely to continue expanding for years to come. Thus, optimism about coming opportunities—especially in the burgeoning electronics recycling sector—seemed to outweigh pessimism regarding today’s market and regulatory difficulties as the meeting closed. What follows are highlights from the market reports that set the mood in Shanghai.
Pessimism Prevails in Ferrous
In 2011, commodities expert Jim Rogers told attendees at the BIR Ferrous Division meeting in Singapore that they were all going to be rich. Fast forward to 2013, and the mood is different, with BIR Ferrous Division President Christian Rubach of TSR Group (Bottrop, Germany) stating he is a “little bit pessimistic.” The outlook in Europe is especially gloomy, Rubach said, as the financial crisis, austerity programs, and low scrap consumption levels have all weighed on the world’s largest steel recycling region. He also warned of the growing number of protectionist efforts that have accompanied the economic slowdown, including the European Union’s proposal to require certifications for recycling facilities that seek to export scrap outside the EU. Such certification schemes are thinly veiled anti-industrial policies that would decrease recycling in the EU and potentially start a trade war, he said.
A report submitted by Tom Bird of Van Dalen Recycling (Sheffield, England) went into more detail about the European market, saying falling valuations, weak steel demand, and overcapacity at major European steelmakers are having a negative impact on the scrap industry. Despite expectations that steel demand will pick up in the second half of the year, especially in China and the United States, European steel producers are at a disadvantage due to higher raw material costs, he noted. As a result, he expects the rest of the year to be a challenge for the European scrap industry.
In the United States, ferrous scrap prices fell $20 to $25 a gross ton in May, with market opinion suggesting prices could fall another $10 or more in June, said Blake Kelley of Sims Metal Management Global Trade Corp. (New York). As of late May, prices for hot-rolled coil in the United States had fallen to their lowest level since late 2010, although steelmakers recently announced increases of $50 a net ton for flat-rolled products, he reported. On the positive side, U.S. service center inventories of carbon steel were at their lowest level since January 2011, and domestic auto production is expected to increase to 15.8 million units this year and 16.4 million units next year, Kelley said.
In the Pacific Rim, Kelley said that despite difficult market conditions in China, steel mills there continue to add capacity and produce larger volumes of steel. As China’s steel inven-tories remain elevated, more of its steel has found its way to the export market, resulting in a record 5.5 million mt of Chinese finished steel exports in April.
Chinese steel scrap consumption fell in 2012, said guest speaker Jason Sun of Sinosteel Raw Materials Co. (Beijing). Factors contributing to the decline, he suggested, were the high price of steel scrap, China’s 17-percent value-added tax on steel scrap imports, and the fact that scrap prices exceeded its domestic steel prices. Although China’s crude steel production is expected to grow to 750 million mt this year, Sun expects that output to level off, though the volume produced from scrap is expected to increase to 200 million mt annually.
Looking at other Asian markets, Kelley said that in South Korea, scrap imports have continued apace, although scrap prices there and in Taiwan have been pressured lower. In Southeast Asia, a weaker Japanese yen has made the H-2 grade from Japan more attractive to Asian buyers, he added. For the fiscal year that ended in March, Japan exported nearly 9.1 million mt of ferrous scrap, 52 percent more than it did the previous fiscal year, noted Hisatoshi Kojo of Metz Corp. (Tokyo).
In India, ferrous scrap imports continue to increase year on year, with fiscal year 2013 imports expected to reach 7 million to 7.5 million mt, said Zain Nathani of the Nathani Group of Cos. (Mumbai). Cooling domestic scrap demand in April and May brought softer prices, however, as steel production in India has not met growth targets. Nathani also cautioned that the Indian government’s recent 2.5-percent import duty could depress trade levels, adding that BIR and the Metal Recycling Association of India (Mumbai) plan to fight it.
After announcing big losses in the last financial year, Russian steel producers are having an even more difficult time this year, said Andrey Moiseenko of Ukrmet (Donetsk, Ukraine). On the scrap side, the weak Russian ruble, decreasing freight costs, and good scrap flows have supported Russian scrap exports, he said. Further, with two new electric-arc furnaces expected to start up in Russia this August, some steel mills planned to start building their winter stocks in June. In the Ukraine, a new EAF requiring 100,000 mt of scrap annually is now operating, with another expected to come online in the third quarter, but scrap market conditions have been challenging due to payment delays from the steel mills, low prices, and an unofficial export ban that has forced scrap market participants to stop or severely limit their activities, Moiseenko said.
Guest speaker Peter Marcus of World Steel Dynamics (Englewood Cliffs, N.J.) asserted that falling iron ore prices could lead to further declines in scrap tags. He expects the steel industry will travel a “rutted road” through 2014, he said, with hopes for a better business environment starting in 2015.
Nonferrous Faces Thefts, Trade Restrictions
Nonferrous scrap market participants are facing shrinking profit margins and additional government impediments to free trade, among other challenges, said BIR Nonferrous Division President Robert Stein of Alter Trading Corp. (St. Louis). Barriers such as India’s new duties on both ferrous and nonferrous scrap imports and China’s increased customs scrutiny of imported scrap—Operation Green Fence—are hampering the commercial flow of scrap and raising the cost of doing business, while ongoing thefts of scrap metal from containers further erode profit margins, he said. Stein encouraged both BIR and ReMA members to report any instances of container theft to the International Maritime Bureau (London) so it can build a comprehensive database to help protect the scrap industry from such crimes.
Despite the poor economic conditions in Europe and, to a lesser extent, the United States, not all is “doom and gloom,” Stein said, as continued economic growth in China and India should bode well for the scrap industry. He stressed that every developed economy has relied heavily on nonferrous scrap to satisfy rising consumer demand, infrastructure investment, and economic expansion.
Paul Coyte of Hayes Metals (Auckland, New Zealand) provided an overview of international market developments and compared current conditions with the market update he gave at BIR’s spring convention five years earlier, in 2008. That year, the Indian government withdrew import duties on steel, zinc ingots, and zinc scrap; this year it has imposed a 2.5-percent import duty on melting steel, aluminum scrap, and stainless steel scrap while re-imposing the 4.5-percent special additional customs duty on brass scrap imports. In South Africa, the main concern in 2008 was the local energy crisis that was weighing on scrap volumes; today there’s less talk about the power crisis and more concern about potential export restrictions on scrap, he said.
Nonferrous scrap availability has tightened in Europe, the Middle East, and North America, and discounts are narrowing as a result, Coyte said. In Europe, demand appears to be strong in Germany, France, and the Nordic countries, but scrap is scarce, and there is a prevailing bearish feeling as market participants expect metal prices to stagnate in the coming months, he said. Although scrap supplies in Russia also are tight, scrap processors there are investing in more machinery to allow for a “deeper level” of recycling, Coyte said. The Japanese economy is recovering slowly, and demand for aluminum alloys is on the rise, especially from Southeast Asia, where auto production increased 44.5 percent in the first quarter of this year, he said.
Guest speaker Guo Xun Min of Dongying Fangyuan Non-Ferrous Metal Co. (Dongying, China) outlined China’s role in the global copper and other nonferrous metal markets, stressing how important innovation is to copper smelting enterprises. His company has grown from 10,000 mt of electrolytic copper production capacity in 1998 to 400,000 mt today with plans to reach 600,000 mt by the end of the year. Scientific innovation has been his company’s lifeblood, Guo said: Its award-winning bottom-blown oxygen furnace technology has improved recovery rates, reduced energy costs, and expanded its ability to smelt other nonferrous ores.
Although China uses 40 percent of the world’s copper, it imports 70 percent of its needs, buying more than 7.8 million mt of imported copper in ore and concentrate and 3.4 million mt of imported refined copper in 2012, Guo said. Resource constraints are the biggest bottleneck for China’s copper industry, he added, but the country also is trying to balance economic development and environmental protection.
Guest speaker C.S. Huang of Ye Chiu Metal Taicang (Taicang, China) addressed the development of China’s secondary aluminum alloy ingot and automobile industries. Although rising labor and energy costs, high scrap import prices, and increasing environmental concerns have added to production costs and cut profit margins, Chinese auto production and aluminum alloy ingot demand will continue to rise, Huang said. China became the world’s No. 1 auto producer in 2009; its auto demand has continued to grow 21 percent a year; and the aluminum content of new cars is on the rise, all of which bode well for the industry, he said. Given the expense and tighter scrutiny of aluminum scrap imports, Chinese producers and government authorities are seeking to promote domestic aluminum scrap generation. Thus, Huang said, he expects China’s imports of aluminum scrap to decline gradually in the future.
Stainless Faces a Year of Challenges
Despite a promising start to 2013, rising global nickel mine output, lower nickel prices, softer Chinese demand for stainless steel, and reduced nickel consumption have contributed to a weaker-than-expected market this year, said Ian Hetherington of the British Metals Recycling Association (Brampton, England) at the Stainless Steel & Special Alloys Committee meeting. One slightly positive note is that the reduced availability of scrap has offset lower demand for the material, he said. Overcapacity in stainless steel production is a recurring problem in various global markets, including in Europe, where antitrust concerns have slowed attempts to restructure the industry, he said. Reduced global demand has significantly affected India’s stainless steel industry, resulting in a sharp drop in its stainless scrap imports. In Russia, strict controls on stainless steel scrap exports have disrupted trade flows, Hetherington said, adding that Russia’s recent entry into the World Trade Organization should reduce its export duties 5 percent a year starting this year.
In the Far East, nickel pig iron remains the dominant nickel input for Chinese stainless steel production, although the recent drop in London Metal Exchange nickel prices could prompt some higher-cost producers to cut their NPI output, Hetherington said. In Taiwan, a widely expected increase in activity in the second and third quarters failed to materialize. As a result, stainless mills are likely to cut production and reduce their purchases of stainless steel scrap. Across Asia, scrap dealers are in an unsustainable fight to capture market share due to less manufacturing and worsening demand, he said. The U.S. stainless market is more positive in comparison, although dealers who had expected rising nickel prices now face the unwelcome combination of falling inventory values and dwindling scrap flows, he said.
According to a report Barry Hunter of Hunter Alloys (Boonton, N.J.) submitted, the U.S. business climate is “relatively decent,” as the largest domestic stainless steel producer continues to aggressively market its products and compete against Chinese imports. It’s unclear whether stainless steel scrap is actually in short supply in the United States or whether market participants simply are holding material given the challenging market conditions, he said. The new Outokumpu stainless steel mill in Alabama has yet to have a significant impact on the domestic scrap market, he added.
Guest speaker Markus Moll of Steel & Metals Market Research (Pflach, Austria) reviewed global trends and their impact on the stainless industry. Global stainless steel demand is expected to grow 4 percent this year, with Brazil, Russia, India, China, and South Africa—the BRICS nations—driving stainless steel consumption. As a whole, stainless steel producers are in bad shape and were unprofitable in 2012, while stainless scrap industry profit margins were minimal and well below target, he said. In comparison, mining industry profits were seven times those of stainless steel producers. Nickel pig iron production has been the game-changer for the nickel market, he said, placing both a floor and a ceiling on nickel prices because nickel pig iron ramps up “massively” when nickel reaches
$13 a pound.
Moll expects nickel prices to rise after this year and to range from $10.30 to $16.50 a pound in 2020. By that time, according to global melt-shop consolidation and scrap consumption trends, Asia will need to generate 7.6 million mt of stainless steel scrap. Among the top 20 global producers of stainless steel flat products, the capacity utilization rate will increase from 73 percent in 2012 to 80 percent in 2014, he said. Despite the current problems stemming from production overcapacity, China won’t start cutting capacity until 2016, Moll said, suggesting some melt shops in North America also should close. Of the global trends that could benefit the stainless steel industry, he highlighted growing wealth and urbanization in emerging economies, the increasing importance of energy efficiency and the scarcity of potable drinking water, the global equalization of production costs, and changing design principles that emphasize sustainability.
In a report on superalloy markets, Phil Rosenberg of Keywell (Chicago) indicated a backlog of metal has been accumulating as production levels have waned and the short-term outlook has worsened. He stressed the overarching need for sustainability and stability in the industry, which could come through consolidation.
Paper Banks on Future Demand From Asia
In his final meeting as president of the Paper Division, Ranjit Baxi of J&H Sales International (London) offered this advice: “For us to succeed in this business, the word quality must be at the top of every business agenda.” For paper recyclers, the meaning was unmistakable: China’s Green Fence initiative, designed to halt illegal and contaminated shipments of recyclables into China, has had profound effects on their businesses.
Minnie Kong, an associate economist with RISI (Shanghai), summarized the Green Fence effort in blunt terms: “China no longer wants to receive garbage from overseas.” Although recyclers might disagree with the Chinese government’s definition of garbage, Kong said the program shouldn’t come as a surprise, as it mainly enforces existing regulations on import quality standards. “Existing regulations limit the amount of nonrecyclable materials in bales,” she said, “but enforcement of regulations has been lax.”
No speaker provided statistics on how many scrap paper shipments China has delayed or blocked since implementing the Green Fence in February (such data typically is reported annually on an aggregate basis), but Jean-Luc Petithuguenin, chair of Paprec Group (Paris), pointed out that in Western Europe, “prices are under pressure and exports are hurt by inspections in China and the downturn in Asia.” Data Baxi provided showed that China’s first-quarter imports of recovered paper declined for the first time since 2009, slipping slightly from 7.24 million mt in 2012 to 7.19 million mt in 2013. This decrease, which Baxi did not attribute directly to the Green Fence initiative, is curious at a time when “fiber demand and consumption is increasing the world over.”
Kong suggested that in the short term, the Green Fence initiative is likely to hurt North American and European export markets while creating problems for Chinese mills that rely on recovered paper. Long term, however, “Will there be a higher standard to obtain AQSIQ exporter licenses for recovered paper exporters?” she asked. Among its positive effects, she speculated that the quality of imported recovered paper likely will rise, along with the incentives for Chinese enterprises to collect more paper domestically. Perhaps the most important question is one that only the Chinese government can answer: “Will this initiative last?” The government has indicated the Green Fence effort will last until November, Kong said.
The bad news for the paper market wasn’t limited to Green Fence developments. Baxi said the eurozone crisis has contributed to the worst European recession since World War II, and the U.S. economy—though showing signs of recovery—still suffers from high unemployment and deficits. “Prices for fiber will remain volatile in this climate,” he stated.
Despite the prevailing economic conditions, the Paper Division session was not all gloom. Although “Asian economies have been hurt by weakening demand from the West,” Baxi said, “all Asian economies are continuing to grow over 5 percent annually.” Asian recovered paper demand will rise in 2013 and 2014, though growth definitely will slow, Kong added. In particular, she expects high recovered paper use rates in the Asian containerboard sector, as well as growth in overall recovered paper-based containerboard output. The boxboard sector will show some recovered paper gains, though virgin boxboard capacity is expanding rapidly in China. Newsprint, however, will post almost no growth due to the same factors—most notably digital publishing—that are driving down that sector in the United States and European Union, she said.
All of this growth in production means scrap paper exporters are feeling confident in the long-term demand for their products. As Baxi and others noted, China—and the rest of Asia—remain the world’s best customers for secondary paper. From 2011 to 2012, China’s imports of scrap paper alone grew from 27.3 million mt to 30.1 million mt. In Kong’s view, old corrugated cardboard is the grade best poised for growth into China, though she expects to see growth in demand for all grades, in large part due to shortages in developing countries.
Plastics Face Short-Term Pain, Long-Term Promise
The Plastics Division convened under the shadow of China’s Green Fence initiative, with multiple participants asserting that enforcement actions have disproportionately targeted scrap plastic imports, causing serious disruptions in the global secondary plastics markets. Even with the disruptions in China, there is long-term optimism for the industry, said Plastics Committee Chairman Surendra Borad of Gemini Corp. (Antwerp, Belgium). A Bank of America study, he said, indicates that the global waste and recycling business is worth $1 trillion and growing $200 million a day. Global demand for scrap plastics is 40 million mt a year—up from a reported 15 million mt in 2007—and is worth as much as $17 billion, Borad said, offering figures from Pöyry (Vantaa, Finland), a global consulting and engineering firm. According to its data, demand should rise to 45 million mt in 2015 and 85 million mt in 2020. CBI, a London-based research consultancy, estimates Chinese demand alone for recovered plastics will hit 29 million mt by 2015, Borad added. Currently, CBI estimates, China imports 9 million mt of plastic scrap and generates 13 million mt of its own material.
Several speakers noted that China’s outsized role in the global recovered plastics market is both a boon and a bane. “Without China, the scrap market would be almost dormant,” said Michael Schipper of International Alloys (Mendham, N.J.) in his report on the U.S. market. For U.S. traders who are dependent on Chinese demand, “Green Fence is pushing [them] to find new markets. Mixed grades have disappeared almost overnight,” he said. “As Green Fence has progressed, mill prices have been reduced by 15 percent from prior levels.”
In a review of the French market, Gregory Cardot of Veolia Propreté France Recycling (La Plaine-St.-Denis, France) painted an even bleaker picture. The price of raw plastics in the first quarter was stable, but the combination of weak collections—down 15 to 20 percent year on year—and the Green Fence forced prices down €100 a mt in the six weeks prior to the BIR meeting and down as much as €150 a mt “for all grades of polyethylene,” he said. The eurozone crisis is the biggest culprit, he added, noting that payment terms “are not respected, and delays are increasing.” Worse, the number of French plastics converters and recyclers “in receivership or bankruptcy is increasing.”
Nevertheless, Cardot—as with other speakers—wasn’t completely pessimistic about the Green Fence initiative, even seeing it as an opportunity for the global recovered plastics trade to standardize its practices across borders.
Steve C.K. Wong, managing director of Fukutomi Co. (Hong Kong), a plastics recycler, offered a detailed description of items being rejected under the Green Fence initiative. According to his information, the list of prohibited postconsumer scrap plastic items includes, but is not limited to, polypropylene bulky bags/woven bags, mixed hard plastics from households, low-density polyethylene film, polyethylene terephthalate and high-density polyethylene bottles, polycarbonate from CDs and DVDs, and metal-containing plastics from end-of-life electrical and electronic devices.
Arguably, the most transformative feature of the initiative, however, is its crackdown on the widespread practice of using licensed importers as brokers of incoming scrap, Wong said. “Imported plastic scrap materials must be delivered to [a] factory [that] is eligible to import as stated on the import licenses,” he explained. This initiative has had a profound effect, he said, effectively choking off scrap supplies to many of China’s thousands of small plastics recyclers and depressing import demand.
If the Green Fence initiative persists, it will bring significant structural changes to China’s secondary plastics industry, Wong said. In particular, China’s imports will shift away from postconsumer scrap to clean postindustrial and engineering scrap as well as “recycled raw materials from postconsumer scrap,” he said. Equally important, he predicted that long-term enforcement will push lower-grade plastics into Southeast Asia. Ultimately, Chinese traders will be eliminated from the secondary plastics markets, he stated, and “only those recyclers who also produce finished products can sustain.”
If the intent of the Green Fence initiative is to support larger, more established recyclers with finished-product capability, there’s evidence it might be missing the mark. Renwu Cai, general manager of Guangzhou GISE-MBA New Plastics Technology Co. (Guangzhou, China), one of China’s most advanced plastics recyclers, said the Green Fence import restrictions have badly affected even law-abiding recyclers.
Adam Minter is a journalist based in Shanghai, where he writes about business and culture for a range of publications, and Joe Pickard is chief economist and director of commodities for ISRI.
BIR Offers E-Recycling Workshop, Forms Committee
The recent growth of electronics processing—and the proliferation of e-scrap recyclers—led BIR to host an electronic scrap workshop at the Shanghai convention that focused on the generation, flows, and processing of end-of-life electronics. Li Jinhui, a professor at Tsinghua University and executive secretary of the Basel Convention Regional Centre for Asia and the Pacific, both in Beijing, offered an overview of Chinese e-scrap generation and legislation. Currently, China generates approximately 3.5 million pieces of electronic scrap annually, and it has recycled roughly 100 million units since its national electronic scrap recycling program began in 2011, he said. Although China’s collection system is functioning and upgraded e-scrap recycling technologies are coming online, the country will “require time” to develop an environmentally secure e-recycling system, he said.
At the workshop, BIR announced the formation of its Electronic Scrap Committee, which will operate under the auspices of the Nonferrous Division. Phär Oscár of Stena Metall (Göteborg, Sweden) will chair the new group, which will serve as a resource to companies and authorities seeking information and consensus on the rapidly proliferating number of standards and certifications for electronics recyclers, said Ross Bartley, BIR’s technical and environmental director.
Papyrus Award Honors “Waste Paper Queen”
The BIR Paper Division gave its latest Papyrus Prize to Cheung Yan, chair of Nine Dragons Paper Group (Hong Kong), the largest containerboard manufacturer in Asia. Since the company’s founding in 1995, it has become one of the world’s largest consumers of recovered paper, and Cheung has become a global icon for Chinese entrepreneurship and the recovered paper industry. Before the global economic crisis in 2008, she was ranked the wealthiest woman in China and is widely—and affectionately—known as the “Waste Paper Queen.” Presenting the award, Paper Division President Ranjit Baxi praised her as a “global green ambassador” and noted the important role she has played in raising the industry’s profile. In accepting the award, Cheung said she knew early in her career that she had “entered a very meaningful industry because we are transforming household waste into packaging,” and she called her company “the protectors of the environment, not the troublemakers for the environment.” She also noted that Nine Dragons plans to expand its annual production capacity from 13.5 million mt to 15 million mt by 2015, with much of the growth at operations in Vietnam.
A Look at China’s Tire Recycling Industry
China, now the biggest market for automobiles, also generates the largest quantity of scrap tires: 8 million mt a year, or roughly 36 percent of the global total, Pang Shuhua, secretary general and vice president of the China Tire Retreading, Repairing and Recycling Association (Beijing), reported at the Tires Committee meeting.
Though China has just 9 percent of the world’s automobiles, its disproportionate share of scrap tires is partly the result of its underdeveloped retreading industry and a lack of retreading standards, Pang explained. In addition, overloaded trucks, poor road conditions, and “unscientific driving habits” degrade the quality of Chinese tires to the point that they aren’t suitable for retreading, he said. As a result, only 14 percent of Chinese tires are retreaded compared with much higher rates in developed countries such as the United States, he said.
Although China prohibits imports of “waste” tires, “used” tires—those suitable for retreading—are allowed, and there are six or seven companies engaged in the business, Pang said. “Of course, there is also smuggling,” he conceded, saying that rising prices are at least partly to blame. In 2000, used and scrap tires were available free in China, but today they are $227 to $358 a mt, he said.
In another tire-market report, Barend ten Bruggencate, chair of the Tires Committee, said the EU’s tire market is “very difficult” at the moment, citing—among other factors—the use of tires for energy and exports. “The future,” he noted, “is not looking brilliant.”
There wasn’t a lot to celebrate about the current international scrap markets at BIR’s spring convention in Shanghai, although speakers still see a strong long-term future for scrap.